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Solar Industry Shakeout — What It Really Means

There’s a lot in the news these days about solar manufacturers going bankrupt. This news is often disheartening, and sometimes used to discredit solar technology and the industry itself. Based on a study I just recently completed, I can tell you that the global industry shakeout is just beginning. Many others have noted, however, that this does not spell bad news for solar technology, its adoption in mainstream society, or the future of solar installation companies. In fact, solar energy is just beginning to take off.

Up until 2011, the industry was still growing in the number of manufacturers. In 2011, the industry saw its first year of negative net entry. If the solar industry continues to follow the path of evolution that other industries have followed, it seems that 2013 will be another difficult year for solar module manufacturers.

Industry shakeouts, however, are a very healthy part of industry evolution and growth. The solar industry is following the same patterns as previously studied industries, such as the automobile industry, the colored television industry, and the penicillin industry. Even though these industries do differ, they’ve evolved in very similar ways.

Graphs of industry shakeouts. These graphs are not ment to be completely exhaustive. There are likely manufacturers missing due to lack of available information and resources of the author. But they’re a good representation of the overall story. (Source: Keppler, 2001)

A basic tenet of industry evolution is that as the number of manufacturers grows, the increased competition and economies of scale bring down the overall prices. The solar industry saw this from 2007 to 2011, when average module prices of the largest solar manufacturers decreased by 57%. Many times, the prices will fall faster than companies can lower their costs. This “margin squeeze” drives less efficient manufacturers out of business.

The goal of many manufacturers in a shakeout will be to “out survive” their competitors. Key drivers of survival in past industries has been date of entry and ability to grow. Those who entered into the industry early, gained the valuable experience needed to fully understand their costs. This understanding gave them a more realistic chance of surviving off of low margins. Experience is also important because it allows companies to make process innovations that make their companies more efficient.

This shakeout period should be a time when the larger and more experienced solar companies will begin to dominate innovation that was previously done by research institutes, inventors, colleges, government institutions, and non-solar companies. The companies who can dominate innovation will survive the shakeout. The shakeout of the solar industry can, of course, be subject to changes in technology, politics, and the economy.

Overall, the evolution of the solar industry will be an interesting addition to previous studies because of its international and subsidized nature. The shakeout will undoubtedly claim many more companies, but the future of solar still remain bright.

I want to take this opportunity to thank Germany, Italy, and China. These three countries used large amounts of taxpayer money to make solar cheap for the entire world. The biggest contribution that will come from the United States will be innovative financing methods, which will open solar up to all.

There is a lot of talk about energy scarcity these days. If our main goal is to constantly increase economic growth, the energy budget of the sun is clearly the best choice. Solar is also the best choice for anything beyond our own gravity well.

Unfortunately people only seem to hear about Solyndra in the mainstream media. Thank you for the well written post.

http://zacharyshahan.com/ Zachary Shahan

i’ve got a great post coming up for you that i think you’ll love (guest post, actually). check in tomorrow.

jburt56

Solar is just beginning–expect another factor of 30 – 100 before it reaches it’s ultimate size. If a Dyson sphere is built we could be talking a billion times it’s current size.

http://www.facebook.com/matthew.t.peffly Matthew Todd Peffly

When ever I hear someone say the shake out mean the death of solar I ask them how many US Auto manufactures existed in the US in 1910 and how many now. They are always shocked to hear the drop. Your charts above a great for that. I’ve seen higher numbers but even you peak of 275 would blow most people away. I’ve see number of up to 1800 for the time frame 1890-1930, of course many of those were for a very short time.

http://zacharyshahan.com/ Zachary Shahan

yeah, this post was long overdue. pure thanks to the author. he did a thesis on this and then offered to share with us.

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